Icons. Geniuses. Mavericks. – REDUX

Last time, I told you about TED 2007 and I noticed Nathan Myhrvold (former MicroSoft CTO –he founded MicroSoft Research) in the speaker list. That prompted me to visit his site, Intellectual Ventures, home of his “invention company”:

Intellectual Ventures is an invention company. We conceive and patent our own inventions in-house through a world-renowned staff of internal and external scientists and engineers. We also acquire and license patented inventions from other inventors around the world. Our network of invention sources includes: large and small businesses, governments, academia, and individual inventors. These inventions span a diverse range of technologies including: software, semiconductors, wireless, consumer electronics, networking, lasers, biotechnology, and medical devices. Our current focus is on developing our invention portfolio. Over time, we intend to market our portfolio on a broad and non-exclusive basis through a variety of channels including spin-out companies.

In the November issue of IP Investor (PDF), it is said that Intellectual Ventures has filed about 400 patents, and Nathan Myhrvold slams eBay for having filled only “10 patents or 11 patents” —big companies need patents “for the future”, he says. It would be interesting to know how many patents BetFair has filled —BetFair, like eBay, is a peer-to-peer exchange.

Of course, once you have transitioned from “invention” to “innovation”, the road does not end there: more than 75% of new products fail.

All this to come back to Robin Hanson’s invention, the concept of decision markets (a market-generated automatism to extract the wisdom of crowds and make it a better decision tool than managers or politicians), which he spams at each conference he is invited in. As I wrote two times, it’s a solution in search for a problem. I would see only two applications (last time I said “only one”, but I got a new idea):

– As I said, series of decisions that are NEVER taken by senior executives.

– In the coming two decades, imaginary universes (like Second Life) are going to meet with prediction markets. Once we are there, we can imagine a Second Life sub-universe filled with libertarians, playing with imaginary prediction markets. Then, yes, if the gamers agree, imaginary decision markets could rule —both at the macro and micro levels.

More Resources On Innovation:

The Business Innovation Insider blog – (highly recommended, especially to my marketing guru Guy Kawasaki)

Innovators share the lessons they’ve learned during 2006 – (a hodgepodge of ideas taken from various thinkers)

NewsFuturess explainer on prediction markets

No GravatarNo definition, but there&#8217-s an example, here &#8212-static, alas.

(((In passing, I see that NewsFutures &#8220-will use the Brookings Institution&#8217-s Iraq Index as a source to measure troop levels.&#8221- Good. But what it they fail to deliver, like the US DOD in the NKM scandal?)))

Previous blog posts by Chris F. Masse:

  • Is that HubDub’s Nigel Eccles on the bottom left of that UK WebMission pic?
  • Collective Error = Average Individual Error – Prediction Diversity
  • When gambling meets Wall Street — Proposal for a brand-new kind of finance-based lottery
  • The definitive proof that it’s presently impossible to practice prediction market journalism with BetFair.
  • The Absence of Teams In Production of Blog Journalism
  • Publish a comment on the BetFair forum, get arrested.
  • If I had to guess, I would say about 50 percent of the “name pros” you see on television on a regular basis have a negative net worth. Frightening, I know.

Prediction Markets Definitions – REDUX REDUX

No GravatarI would like to comment on the post from the Hatena Diary blog. (By the way, please note that my URL has changed, because I corrected one word in the post title. Sorry for the inconvenience.)

#1. Speculation-oriented prediction markets/exchanges: TradeSports, BetFair.

#2. Hedging-oriented prediction markets/exchanges: HedgeStreet and all the Chicago exchanges that will do binary, European call options.

#3. Forecast-oriented prediction markets/exchanges: Iowa Electronic Markets, AS CLAIMED BY THESE SCHOLARS WHOSE TASK WAS TO CONVINCE THE CFTC TO GRANT THEM A NO-ACTION LETTER. (They would have not gotten it, had they emphasized &#8220-speculation&#8221-. And, of course, &#8220-hedging&#8221- was out of question.) It&#8217-s a &#8220-claim&#8221- that might be discussed, since we&#8217-ve seen that TradeSports-InTrade is a much more powerful predictive tool for the US elections. Ditto for BetFair for U.K. elections.

#4. Decision-oriented prediction markets/exchanges: I would put here the kind of stuff that Robin Hanson is so excited about.

#5. Entertainment-oriented prediction markets/exchanges: Hollywood Stock Exchange, Washington Stock Exchange, Inkling, NewsFutures.

#6. Education-oriented prediction markets/exchanges: The Iowa Electronic Markets fits here, partially, regarding the use that professors around the country make of their markets in classrooms.

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– I disagree with Google in #4. Maybe the Google internal prediction markets would fit in #3.

– I disagree with NewsFutures in #3 &#8212-I acknowledge (at least partially) the predictive power of play-money prediction exchanges, of course.

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Should we judge markets/exchanges on INTENTIONS or on RESULTS? I don&#8217-t give a damn that TradeSports-InTrade and BetFair were created for speculation– if they have better predictive power than IEM, I&#8217-m fine with them. Ditto for the HSX. I don&#8217-t give the first fig that it was created as an entertainment tool. It&#8217-s the best forecasting tool for the movie business, period.

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For the links to the prediction exchanges, see CFM.

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Previous Blog Posts:

Prediction Markets DEFINITIONS – not a “taxonomy”

Professor Robin Hanson’s draft definitions is validated by professor Eric Zitzewitz.

Prediction Markets Definitions – REDUX

Prediction Markets Definitions – by Robin Hanson – 2006-11-21

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Addendum: Robin Hanson has posted a comment&#8230-

“Oriented” is not clear enough for my tastes. Is this about trader motives? Trader results? Price results? Exchange motives?

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My Answer: I meant &#8220-exchange motives&#8221-. [&#8230- See my comments. &#8230-] But now that I think of it, another classification taking account of the &#8220-price results&#8221- makes more sense.

Previous blog posts by Chris F. Masse:

PEAR lab (Princeton Engineering Anomalies Research) – REDUX – Retrocausality in physics

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In my previous blog post, I said that Princeton professor Robert Jahn has been unable of finding the right hypothesis about the so-called &#8220-psychic phenomena&#8221- (if any). I mentioned the work of a theoretical physicist, Olivier Costa de Beauregard, who interprets the E.P.R. paradox using the concept of &#8220-retrocausality&#8221- (the reversal of the arrow of time). I said that, speaking of the so-called &#8220-psychic ability&#8221- (if any), one could interpret the so-called &#8220-precognition&#8221- (if any) as a reversal of the psychological arrow of time, where the mind could receive information coming from its own future.

Well, today, via Jason Kottke, we have some news from the scientific world that scratches this concept of &#8220-retrocausality&#8221- (which we should not confuse with &#8220-finality&#8221-, I was told), and which seems to comfort the Costa de Beauregard&#8217-s interpretation:

Quantum theory describes the behavior of matter and energy at the atomic and subatomic levels, a level of reality where most of the more familiar Newtonian laws of physics (why planets spin, airplanes fly and baseballs curve) no longer apply. The problem with quantum theory, put simply, is that it&#8217-s really weird. Findings at the quantum level don&#8217-t fit well with either Newton&#8217-s or Einstein&#8217-s view of reality at the macro level, and attempts to explain quantum behavior often appear inherently contradictory. &#8220-There&#8217-s a whole zoo of quantum paradoxes out there,&#8221- Cramer said. &#8220-That&#8217-s part of the reason Einstein hated quantum mechanics.&#8221- One of the paradoxes of interest to Cramer is known as &#8220-entanglement.&#8221- It&#8217-s also known as the Einstein-Podolsky-Rosen paradox, named for the three scientists who described its apparent absurdity as an argument against quantum theory. Basically, the idea is that interacting, or entangled, subatomic particles such as two photons &#8212- the fundamental units of light &#8212- can affect each other no matter how far apart in time or space. &#8220-If you do a measurement on one, it has an immediate effect on the other even if they are separated by light years across the universe,&#8221- Cramer said. If one of the entangled photon&#8217-s trajectory tilts up, the other one, no matter how distant, will tilt down to compensate. Einstein ridiculed the idea as &#8220-spooky action at a distance.&#8221- Quantum mechanics must be wrong, the father of relativity contended, because that behavior requires some kind of &#8220-signal&#8221- passing between the two particles at a speed faster than light.

This is where going backward in time comes in. If the entanglement happens (and the experimental evidence, at this point, says it does), Cramer contends it implies retrocausality. Instead of cause and effect, the effect comes before the cause. The simplest, least paradoxical explanation for that, he says, is that some kind of signal or communication occurs between the two photons in reverse time. It&#8217-s all incredibly counterintuitive, Cramer acknowledged. But standard theoretical attempts to deal with entanglement have become a bit tortured, he said. As evidence supporting quantum theory has grown, theorists have tried to reconcile the paradox of entanglement by basically explaining away the possibility of the two particles somehow communicating. &#8220-The general conclusion has been that there isn&#8217-t really any signaling between the two locations,&#8221- he said. But Cramer said there is reason to question the common wisdom. Cramer&#8217-s approach to explaining entanglement is based on the proposition that particles at the quantum level can interact using signals that go both forward and backward in time. It has not been the most widely accepted idea. But new findings, especially a recent &#8220-entangled photon&#8221- experiment at the University of Innsbruck, Austria, testing conservation of momentum in photons, has provided Cramer with what he believes is reason for challenging what had been an untestable, standard assumption of quantum mechanics.

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Parting Shot: If &#8220-psychological retrocausality&#8221- (&#8220-precognition&#8221-, actually) could be engineered one day, then we could make a killing on prediction markets. I could have sold short the SENATE.GOP.2006 contract at TradeSports, and made as much money as scientist David Pennock did (or so he claims &#8212-and I saw that some vendor also made this self-interested and undocumented claim).

The TradeSportss NKM scandal vs. the BetFairs 2006-Senate case

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JC Kommer was prompt to comment on my 2006-Senate piece:

Double standard Mr Masse.
Betfair is doing exactly the same thing that Tradesports in the NKM “scandal”, going for the literal reading of the rules as they should.

My Answer To JC Kommer:

I disagree.

NKM Scandal: TradeSports made two grave errors. Number one, they engraved in marble that they would rely ON A SINGLE SOURCE OF INFORMATION (the US DOD) for the expiry of the contract. This is totally crazy. The truth should be established using as many reliable sources as possible or appropriate (including second-hand but reliable sources like the White House, which is fed by the DOD on military issues). What matters is the truth, gathered from multiple sources, not one particular source that could have an irrational or secretive behavior at some specific times. Number two, while establishing this one-single-source-for-expiry contract, TradeSports was not aware of the well known and public fact that the US DOD never issues detailed statements on North Korea matters. Information about North Korea is &#8220-classified&#8221-. Logically, the US DOD did not confirm directly and in a very formal way that North Korea fired missiles. (Note that a case can be made that the US DOD did indeed confirm the North Korea firing of missiles, directly and in an elliptic way, which many observers found it satisfying enough for expiry purpose). So, in my view, as I have described above, TradeSports made two grave errors. They apologized to their traders, but they did not take action to compensate the victims of their two errors. The victims here are the &#8220-yes&#8221- speculators on the NKM prediction market. They were correct in their prediction, but they lost their shirt in the end. Note that the &#8220-yes&#8221- bettors and virtual speculators at BoDog and NewsFutures were justly gratified for their accurate prediction on the NKM topic. Which shows once again that the problems originated from TradeSports, and not from the &#8220-yes&#8221- speculators. TEN CEO John Delaney (managing TradeSports) should have compensated the victims. Instead of that, the first action he took on the Monday when the scandal broke was to retaliate against Chris Masse, who gave airtime to the screwed-up &#8220-yes&#8221- speculators.

2006-Senate Case: There are no &#8220-victims&#8221- here, since BetFair sticks with the ORIGINAL contract &#8212-as CLEARLY written ON DAY ONE on their &#8220-RULES&#8221- tab, and as understood correctly by everybody who can read plain English. NO SURPRISE, NO CONTROVERSY. “Which of these parties will have MORE SEATS in the US Senate following the 2006 US Senate Elections?” is a very different question than &#8220-Which of these parties will CONTROL the US Senate?&#8220-. There is no ambiguity in the first question. In the second question, it&#8217-s understood that you could control the US Senate with your allies (the Independents).

BetFair fixes the corruption that it suscitates (since short selling could be used by cheating athletes or jockeys).

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From Andrew Gelman:

In a letter published in the latest New Yorker, Douglas Robertson writes,

James Surowiecki, in his column on sports betting, writes, &#8220-How much difference is there, after all, between betting on the future price of wheat . . . and betting on the performance of a baseball team?&#8221- (The Financial Page, September 25th). Future markets in products such as wheat allow famers and other producers to shield themselves from some financial risks, and thereby encourage the production of necessities. In this sense, the futures markets are more akin to homeowners&#8217- insurance or liability insurance than to gambling on sports. But there is no corresponding economic benefit to betting on sports- on the contrary, there are serious costs involved in protecting the sports activities from fixing and other corruptions that invariably accompany such gambling activity.

This is a good point. I enjoy gambling in semi-skill-based settings (poker, sports betting, election pools, etc.), and betting markets are cool, but it is useful to step back a bit and consider the larger economic benefits or risks arising from such markets.

My Take: They are both misinformed. With an ethical real-money prediction exchange (a.k.a. betting exchange), this problem is easily solved. As I reported last month, BetFair has signed memorandums of understanding with TWENTY FOUR sports bodies. If the BetFair managers spot manipulation attempts, they will report the villains&#8217-s mischiefs to the sports bodies and, possibly, to the Police, too. How do you like that, Andrew Gelman?

Addendum (October 30): Andrew Gelman published a blog post on Midas Oracle, in response.

Prediction markets vs. Experts (a.k.a. pundits)

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Via betting expert Niall O&#8217-Connor, this Slate piece:

But in the run-up to this year&#8217-s midterms, Intrade futures prices are everywhere. RealClearPolitics offers &#8220-Live Intrade Quotes&#8221- alongside its polling summaries. HuffingtonPost now posts them on the front page in a snazzy, multicolored bar graph. The HuffPo graphics won&#8217-t help with Tradesports/Intrade&#8217-s defense. The headline shouts &#8220-Midterm Betting Odds,&#8221- and the caption adds, &#8220-Odds based on people betting real money on the Tradesports website.&#8221- Is betting real money on the midterms a form of online gambling?

My Answer: No. TradeSports-InTrade is a prediction exchange, which can give more objective outcome probabilities than bookmakers or sportsbooks, and the Huffington Post does a diservice to the public in presenting that as &#8220-betting odds&#8221-.

Never mind the current Congress – the real value of political futures markets like Intrade is their potential to put someone else out of business: pundits. Intrade&#8217-s predictions are erratic, unreliable, and meaningless – in other words, a perfect market in the conventional wisdom. Most Washington talking heads are just day traders in political gossip. Thanks to Intrade, you no longer have to listen to all the pontificators, because the market does it for you. In politics, it&#8217-s often hard to tell the difference between the conventional wisdom and &#8220-the wisdom of crowds.&#8221- One man&#8217-s CW is another man&#8217-s WC. As further proof that the market works, this wisdom is now available for free – which is exactly what it&#8217-s worth.

My Take: I agree with what I put in bold, but not with what&#8217-s in between and after.